Where the Money Is…

When the infamous felon Willie Sutton was asked why he robbed banks, he allegedly told the reporter, “Because that is where the money is.” Sutton died in 1980, but if he were still alive he might make a similar quip about modern ATM machines.

The FBI reports that more money is stolen today through data breaches (including compromised ATM systems) than through physical bank robberies. The American Bankers Association estimates that an ATM heist can yield 10 times as much cash as criminals holding up a bank.

This is an interesting development in the light of the 400,000 ATMs presently in service in the United States and more than 2 million ATMs around the world. These machines dispensed $695 billion of cash in 2011 alone. Over the last four decades these ubiquitous machines have been adding convenience (and consternation) for banking customers and lowering employee costs for banks. Apparently, they have also been making it safer for human beings to work in banks by drawing the attention of greedy knaves.

Obviously banks are exploring ways to increase the security of ATM machines. Nevertheless, this provides an excellent illustration of the importance of incentives in economics. All people (even reprobates) respond to incentives. This could be a shopper going out to take advantage of a sale, a taxpayer pursuing actions that will be tax-deductible, or a politician proposing controversial legislation that will generate campaign contributions.

A significant incentive in free markets is the marginal (not average) rate of taxation. The marginal tax rate is how much money the government will take from the next dollar that a person earns. Low marginal tax rates increase the number of people working and actually increase revenues collected by the government. High marginal tax rates discourage honest work and diligent job searches as much as unguarded ATM machines attract thieves.